C. Todd Hewes | Lewis Brisbois Bisgaard & Smith LLP | November 21, 2016
When general contractors, subcontractors, and design professionals face claims or lawsuits arising from original construction or remediation of condominium projects, one of the most important—and also sometimes one of the most difficult tasks—has always been to catalog, usually by unit number, every item of claimed damage by Plaintiff. This can be a challenge when individual unit owners do not personally live in the units and rent them to others. Owners must advise the condo association about their damages. The association may or may not compile the damage information. Often times, this work is not performed until after suit has been filed, which means that defense counsel’s ability to evaluate the claim quickly may be hampered.
In Texas litigation, the burden to assemble all of the individual condominium unit damage information was recently shifted to the condo association, for projects consisting of eight or more units. In late 2015, the Texas legislature enacted Section 82.119 of the Texas Property Code, which itemizes the requirements a condo association must meet before filing suit. Under the law, a condominium association (comprised of at least eight units) which is interested in filing a lawsuit or initiating arbitration proceedings related to either the construction or design of a condo unit or common elements, must take certain specific steps before it can enact legal proceedings. Section 82.119 specifically provides:
(a) This section does not apply to an association with less than eight units.
(b) In addition to any preconditions…in the declaration, an association, before filing suit or initiating…arbitration…to resolve a claim pertaining to the construction or design of a unit or the common elements, must:
(1) obtain an inspection and a written independent third-party report from a licensed professional engineer that:
(A) identifies the specific units or common elements subject to the claim;
(B) describes the present physical condition of the units or common elements subject to the claim; and
(C) describes any modifications, maintenance, or repairs to the units or common elements performed by the unit owners or the association; and
(2) obtain approval from…more than 50 percent of the total votes allocated under the declaration…at a regular, annual, or special meeting…
(c) The association must provide written notice of the inspection…to each party subject to a claim [at least 10 days] before the…inspection occurs…
(d) Each party subject to a claim may attend the inspection…either personally or through an agent.
(e) Before providing the notice of the meeting under Subsection (f), an association must:
(1) …provide the report to each unit owner and each party subject to a claim; and
(2) allow each party subject to a claim at least 90 days after the date of completion of the report to inspect and correct any condition identified in the report.
(f) Not later than the 30th day before…the meeting described by Subsection (b)(2) is held, the association must provide each unit owner with written notice of the date, time, and location of the meeting…
(g) The notice required by Subsection (f) must be prepared and signed by a person who is not:
(1) the attorney who represents or will represent the association in the claim;
(2) a member of the law firm of the attorney who represents or will represent the association in the claim; or
(3) employed by or otherwise affiliated with the law firm of the attorney who represents or will represent the association in the claim.
(h) The period of limitations…for a claim described by Subsection (b) is tolled until the first anniversary of the date the procedures are initiated by the association under that subsection if the procedures are initiated during the final year of the applicable period of limitation.
Defendants benefit from this statute because, under sections (c) and (d), they are provided notice of the inspection and the opportunity to be a part of the inspection performed by the engineer. Further, before the condo association can file suit, under section (e)(2), it must allow the potential defendants “90 days after the date of completion of the report to inspect and correct any condition identified in the report.” While it would be expected that there may be disagreements about the cause of the damages noted in the engineer’s report, this 90 day window can provide time for a dialogue between the parties (and their consulting experts) about how to best approach the situation.
Most attorneys who routinely handle construction cases (as well as the insurer’s representatives) can recount stories of cases where the cost of replacing or repairing damage related to their client’s scope of work was eclipsed by litigation costs incurred in attempting to compel a counsel for the homeowner or association to articulate precisely what they claim is wrong with the property, who is alleged to be responsible, and the extent to which defects have caused damage. By requiring plaintiffs to become more organized as to their claims prior to filing suit, the law should provide defendants with an opportunity to more quickly evaluate a plaintiff’s and to formulate a reasonable response. This can potentially lead to the early resolution of cases with limited issues, or for cases with more significant damages, earlier involvement of consulting experts.
What is not clear from the text of the statute is whether an insurer, who has subrogated to the rights of a condo association, must comply with these requirements. Unlike the Texas “Right to Repair” statute, section 82.119 does not say whether it applies to a party acting on behalf of a condo association. Clarification of this issue by the legislature or courts is need. In such a scenario, it is possible that a condo association may seek the recovery of its deductible or other damages which are not covered by its policy of insurance in an action which is joined with the insurer’s subrogation claim. In that situation, it appears that the association, if not the insurer, must comply with the requirements of the statute.
In addition to the requirements noted in section 82.119, both a condo association and an insurer seeking a subrogation recovery must still comply with the Residential Construction Liability Act (Chapter 27 of the Texas Property Code). There is also nothing in section 82.119 that waives a plaintiff’s requirement of attaching a Certificate of Merit to its petition when filing suit against design professionals. Section 150.002 of the Texas Civil Practice and Remedies Code, which articulates the requirements of the Certificate of Merit, also provides a procedure pursuant to which a defendant may seek dismissal of the case due to the plaintiff’s failure to file a Certificate. Section 82.119 does not contain a similar remedy for a defendant. The question remains, therefore, as to how a defendant should advise the court of a condo association’s failure to comply with the section’s pre-filing requirements.
As with any new piece of legislation, it will be up to the courts to interpret the implementation of this new law. As of the writing of this article, there are no reported cases on this issue. We will continue to monitor the application of this statute and any relevant cases and will report on them in future issues.